We’ve seen now that it’s possible to employ this science in nudging North Korea to alternative strategies. But how does this tool really work in the rest of the infinite world of human interaction and conflict? How must we change our base thinking to work out any variety of predictions and, especially, to change the future?
It is indeed my claim (and part of my livelihood) that outcomes of very big problems with many, many players can be systematically predicted and engineered, but, as you may have noticed, it all starts with asking the right questions. The next chapter will examine what those questions might look like across a wide variety of issues from the worlds of business and foreign affairs.
5
NAPKINS FOR PEACE:
DEFINING THE QUESTION
EVERY AFTERNOON AT 3:30 the Hoover Institution’s senior fellows get together in the Commons Room for coffee or tea and some of the best cookies on the West Coast. In the summer of 1987, as on many other occasions, I took a break from my research to enjoy a cup of coffee, a large chocolate chip cookie, and a bit of collegial camaraderie. On this particular July day, a distinguished Israeli sociologist, Shmuel Eisenstadt, was visiting. He asked me what I was working on, the standard conversation opener in the Commons Room, and I explained that I was trying to improve my original forecasting model which was then several years old.
Shmuel asked, “So, you can predict how to make peace in the Middle East?” This being a tall order, I responded cautiously that perhaps I could predict what steps might be taken over the next few years to advance the prospects of peace. I emphasized that this required data, not a crystal ball. He asked what data I needed and then, pen in hand, wrote on my coffee-stained napkin and his napkin as well, listing stakeholders, their potential influence, salience, and positions on a scale measuring possible concessions in the context of a multination peace conference. (The Soviet Union was calling for such a conference in 1987.)
Eisenstadt’s question to me is pretty close in form to the questions I’m asked to examine—whether by companies pursuing mergers, the Defense Department trying to evaluate a terrorist threat, law firms trying to sort out suits, or the CIA trying to understand Iran’s nuclear ambitions—and almost always, the question asked is not actually the question for which an answer really is wanted or needed.
WHAT’S THE PROBLEM?
The big question—how to make peace in the Middle East—is best answered by working out what the many smaller questions are that, taken together, add up to a solution. Framing the problem is usually the hardest part of the prediction and engineering process. I never cease to be surprised that even when billions of dollars or thousands of lives are at stake, decision makers rarely work through what it is they actually need to know. They are usually astonished—fortunately, pleasantly so—to realize that they have not thought systematically enough about their own problem to know what it is they need to know or do.
For me, answering a question like “How can we make peace in the Middle East?” involves breaking this question down to specific issues, to specific choices that must be made. Therein lies the key. Questions need to be about actual choices confronting decision makers rather than about abstract ideas like winning or getting ahead. If you want to win, you need to know what it is that signifies you won, you lost, or you did acceptably well, and by how much. Only after we have drawn out exactly what subjects or questions need precise decisions can we start putting the analyses of all of the issues together so that we might successfully identify the underlying stumbling blocks and find ways around them.
For some problems, framing the problem is relatively easy. Much litigation, for instance, revolves around a settlement price. What a defendant really wants to know is “How much do I have to pay to resolve this lawsuit?” To answer that question, it’s just necessary to know what demands players currently say they support, how salient the price is for each stakeholder, and how much clout each could bring to bear.
Of course, even lawsuits are sometimes more complicated than just working out a settlement price. Discussing a problem with a client, I might learn that they also need to know whether all charges can be resolved with one global settlement price or whether the price paid for one part of a lawsuit will influence the price that has to be paid for another part. Once in a while, it gets still more complicated. There might be multiple defendants, so it’s important to work out not only how much has to be paid to get the plaintiffs to settle, but how the cost will be distributed across the defendants, their insurers, and other involved parties. This sometimes leads to questions about whether it makes sense to drag in other parties as co-defendants or not. Adding co-defendants involves trade-offs. On the one hand, there will be more potential payers with more defendants. That can be a good thing, of course. On the other hand, more defendants means having to coordinate a strategy with many more businesspeople, their lawyers, and their insurers. That can get confusing and expensive. As you can see, a simple question like “What will it take to settle this lawsuit?” can quickly grow into a complicated, interlaced set of issues in which resolving one question changes how others can be resolved. That means we not only have to figure out what the actual questions are that must be decided, but also the sequence of agreements that leads to the optimal outcome.
Business mergers are still more complex most of the time. Unlike litigation, mergers rarely hinge just on the price to be paid for putting companies together. Lots of other issues enter into a successful merger. But mergers can also be simpler than litigation in that the range of likely merger issues is usually well defined and tends to be pretty much the same across all mergers and acquisitions. The price to be paid (or to be obtained) is always a question, of course, but merger discussions rarely get anywhere if there is a substantial disagreement about the worth of a property. That means that the price rarely is the reason an attempted merger or acquisition fails. Remember the example of a merger between a French and a German bank in an earlier chapter. That deal hinged on whether the German executives had to move; they were willing to take a lower price for their bank if they could stay put in Heidelberg.
Several years ago I worked with an international team of analysts on a major effort to create a unified defense industry across Europe, one that could compete with the American defense industry. We looked at virtually every possible combination of defense firms in Britain, France, and Germany, as well as several possible combinations that would have included defense firms in Italy, Spain, or Sweden. The question put to us was “Can we do these mergers?” To answer that question, my team needed to examine approximately seven different issues for each possible combination of firms for a total of more than seventy individual issues, each representing a decision that could make or break a multibillion-dollar deal. Some of the make-or-break questions, the issues on which agreement had to be reached, included (1) the price, (2) allocation of management control between merged units, (3) the scope of businesses to be included or excluded from the merged entity, (4) employment guarantees for workers in various units across national boundaries, (5) government’s role in regulating or sharing in ownership and management of the newly created firm, (6) the timing of the transition to combined working units and teams with shared technology, and (7) where the senior managers would be expected to live.